Accounting: Break-even quantity and capital strucuturing.

16.1 Shapland Inc. has fixed operating costs of $500,000 and variable costs of $50 per unit. If it sells the product for $75 per unit, what is the break-even quantity?

16.2 Counts Accounting has a beta of 1.15. The tax rate is 40% and Counts is financed with 20% debt. What is Counts's unlevered beta?

16.3 Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk?

16.4 Nichols Corporation's value of operations is equal to $500 million after a recapitalization (the firm had no debt before the recap). It raised $200 million in new debt and used this to buy back stock. Nichols had no short-term investments
before or after the recap. After the recap, wd _ 0.4. What is S (the value of equity after the recap)?

Solution Summary

The problem deals with estimating the break-even point and evaluating different capital structures.

Please help answer the following question.
A finance manager considers the accounting break-even point more important than the financial break-even point. Do you agree with the manager? Give reasons.

Find a linear cost function in
Break-Even Analysis The cost function for flavored coffee at an upscale coffeehouse is given in dollars C(x) = 3x 1 + 160,by where x is in pounds. The coffee sells for $7 per pound.
a. Find the break-evenquantity.
b. What will the revenue be at that point?

The Gregory's Pie Company is facing a capacity dilemma in that the current capacity is at its limits, but at the same time, capital investment in a new line is high and, additionally, a new line might lead to a situation of over capacity.
The fixed cost of investment is estimated at 600.000 Euros for a capacity of 150.000 pie

Expanded Accounting Equation
For the following four cases, use the expanded accounting equation to compute the missing
quantity.
Assets Liabilities Capital Stock Retained Earnings
Case A $20,000 $ 8,000 A $ 3,500
Case B 16,000 B $ 5,000 2,000
Case C

Consider a project with the following data: accounting break-evenquantity = 30,000 units; cash break-evenquantity = 16,500 units;life = 6 years; fixed costs = $210,000; variable costs = $29 per unit; required return = 14 percent. Ignoring the effect of taxes, the financial break-evenquantity is units. (Round your answer to

1. If nothing else changes, an increase in fixed cost will
A.decrease the break-evenquantity point
B.increase the break-evenquantity point
C.will have no effect on the break-even point
D.may either increase or decrease the break-even point
2. The degree of operating leverage can be defined as
A.the change in profit for

The following is for a Capital setting:
Fixed cost = $4,000,000
Variable costs per member = $200
Enrollment fee per member = $400
Target profit = $600,000
1. Determine the contribution margin for this practice.
2. Determine the accounting break even point in the terms of number of Enrollees.
3. Determine the econo

Clovis Supply sells two models of saddles to retail outfittersĂ˘?"basic and custom. Basic saddles sell for $930 each and custom saddles sell for $1,620. The variable cost of a basic saddle is $510 and that of a custom saddle is $810. Annual fixed costs at Clovis are $293,850. The break-even point at the current sales mix is 500

For the following four cases, use the expanded accounting equation to compute the missing quantity.
Assets Liabilities Capital Stock Retained Earnings
Case A $20,000 $ 8,000 A $ 3,500
Case B 16,000